Diversification of Islamic Financial Instruments
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To cater to the growing long term saving needs of the Muslims in UK Al Rayan Bank has
introduced fixed term deposits which are for 1 year, 2 year and 3 year, with expected higher
profits. To inculcate savings behavior in youngsters, they have also introduced Mudarabah
based deposit accounts for kids which are designed to start paying the profits either as the kid
is of university age or marriage age depending on the initial understanding.
Musharakah: Musharakah which is a popular source of deposit account globally is used
sparsely in the UK. It is mainly used by the wholesale banks primarily for attracting large
customers. The types of accounts differ mainly on the minimum amount requirement, the
tenor and the agreed profit sharing ratio. The tenor ranges between 6 and 9 months.
Qard Hassan: The Qard Hassan contract is the most popular contract in terms of Current
Accounts being held at the Islamic banks and the Islamic windows. The benefit of this account
is primarily the high frequency of usage this account allows to the customers. The introduction
of Qard Hassan contract for Current Accounts in UK is credited to HSBC Amanah, who utilized
their global experiences to introduce the a Qard Hassan contract to attract salaried individuals
into the Islamic banking.
Wakala: Wakala is used mainly by the institutions to operate an investment account, Zakat
accounts. This contract when used for investment account is normally targeted to corporate
and individual that wants periodic and stable return on their investments. The bank receives
deposits from its customers and invests the same in a specific business venture to agree with
the customer. Another popular use of Wakala contract is in money remittance to other
countries. With a large number of Muslims in UK being of origin of other countries, home
remittance is a major sector which Islamic banks have started exploring over the last two
years using a Wakala contract. Primarily in this arrangement, the bank acts as the agent of the
customer to deliver the money to another location, and in return of the services charges a fee.
The fee is fixed and agreed upon at the onset of the Wakala agreement.
Wadiah: The wadiah account while popular in other parts of the world is rarely used in the UK
Islamic Banking industry. This contract is rarely used by wholesale banks for customer
deposits, but the occurrence is rare.
Financing Products
Murabaha: This is a cost plus contract which is used by the institutions to finance acquisition
of an asset for an individual or corporate customer. The institutions have different variants of
murabaha to suit divergent customer needs. The Murabaha contract is one of the more popular
contracts, and one of the older ones. In 1980s the London Metal Exchange had introduced this
contract for liquidity management, thus the financial sector is well versed with it. Secondly
Murabaha was one of the most popular contracts for home mortgages as a prelude to full-
fledged Islamic Banks in UK. The Islamic banks in UK currently use this contract for personal
finance, household appliances, vehicle, working capital, and international trade uses. The
popularity of Murabaha contract can be judged from the fact that it nearly comprises 60% of
the asset side of the balance sheets of UK Islamic banking operation that are available.
Ijarah/Ijarah wa Iqtina: Ijarah and its variants are generally lease contracts mainly used by
the banks for asset financing. They are structured to meet the customers’ needs at the point of
transaction. The banks normally finance things such as Service using a typical Ijarah by